• Oneok currently transports only natural gas and its byproducts
  • The acquisition will give Oneok access to a network of crude oil and refined product terminals
  • The deal is expected to close in the third quarter of the year

U.S. pipeline giant Oneok has agreed to buy Magellan Midstream Partners in an $18.8 billion cash-and-stock deal. This would create one of the biggest oil and gas infrastructure companies in North America.

The deal, announced Sunday, will facilitate the merger of Magellan into a 100% wholly-owned Oneok subsidiary to establish a combined company with an estimated market value of $60 billion. The joint venture will dominate a massive 25,000-mile network of pipelines sprawling from North Dakota to Texas, Bloomberg reported.

Under the deal, each Magellan stakeholder will receive $25 in cash and 0.6670 shares of Oneok stock per unit, the Tulsa, Oklahoma-based companies said in a joint statement. The transaction also includes $8.8 billion in new equity and the assumption of $5 billion of existing net debt, according to Financial Times.

"The combination of Oneok and Magellan will create a diversified North American midstream infrastructure company with predominately fee-based earnings, a strong balance sheet and significant financial flexibility focused on delivering essential energy products and services to our customers and continued strong returns to investors," Oneok CEO Pierce Norton said in a statement, while describing the transaction as "transformational."

The collaboration comes at a time when companies in the U.S. oil and gas sector are increasingly opting for mergers and acquisitions amid an ongoing dry spell. Natural gas prices in the U.S. have also struggled over the past year due to rising supply and weak demand.

The acquisition will give Oneok, which currently transports only natural gas and its byproducts, access to a massive network of crude oil and refined product terminals. Oneok, which currently trades in only natural gas and its byproducts, said the expansion into the crude and refined products market would ensure "stable cash flows through diverse commodity cycles."

"We believe the premium offered maximizes value creation for Magellan's unit holders and reflects the essential nature of Magellan's assets and service offerings," Magellan CEO Aaron Milford said in the statement.

Oneok secured $5.25 billion in fully committed bridge financing to fund the proposed cash consideration.

After being unanimously approved by the boards of both companies, the deal is expected to close in the third quarter of the year.

"The transaction is expected to be earnings per share (EPS) accretive beginning in 2024 with EPS accretion of 3% to 7% per year from 2025 through 2027, and free cash flow per share accretion averaging more than 20% from 2024 through 2027. Base forecasted synergies are expected to total at least $200 million annually," the companies noted.

Oneok hopes the increased free cash flow will provide additional cash for debt reduction, growth capital and value returned to shareholders through dividends and/or repurchasing shares.

"We believe these activities could potentially result in total annual transaction synergies exceeding $400 million within two to four years," the companies said.

Bankers and advocates have projected a "wave" of partnerships and acquisitions among drillers and pipeline operators after shale companies attempt to make gains in the sector that is struggling to grow.

Late last year, shale oil producers Diamondback and Marathon Oil spent around $3 billion each to acquire land in the Permian and Eagle Ford basins respectively.

Madrid is hoping to revive plans for an ambitious pipeline linking Spain and Portugal to central Europe's gas network